Oil Moves Higher in Morning Trade

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Brent crude on the Intercontinental Exchange moved higher midmorning Wednesday following early morning softness after beginning December business with two straight gains, with early session weakness emerging over market uncertainty about the size of production cuts in 2019 set to be discussed in Vienna this week, and a market view that a recent agreement for a truce in a U.S.-China trade dispute is already unraveling.

Oil futures were also under pressure after the American Petroleum Institute late Tuesday reported bearish oil supply data, showing commercial crude stocks jumped 5.36 million barrels (bbl) during the final week of November that countered expectations for a 1.2 million bbl draw. Oil products also increased well above market estimates according to API, with gasoline inventory up 3.61 million bbl and distillate stocks climbing 4.32 million bbl during the week profiled.

The Energy Information Administration will delay the release of weekly supply statistics from Wednesday morning until 11 a.m. ET Thursday in observance of the National Day of Mourning for President George H.W. Bush.

Both the Nymex and ICE platforms are open for regular session trade in oil futures Wednesday.

Crude oil markets are gripped with uncertainty ahead of the Thursday -- Friday meeting by the Organization of the Petroleum Exporting Counties and 10 non-OPEC oil producing countries led by Russia in Vienna.

Saudi oil minister Khalid al-Falih injected more pressure on oil prices with his comments in a Tuesday interview with Bloomberg, where he said it was "premature" to say whether the producer group would agree on efforts to stabilize the oversupplied market and walked back recent statements about the size of any supply reduction. He also added that Russia agreed to the cuts "in principle," but emphasized that OPEC still needs to "figure out what needs to be done and by how much."

Previously, Russian President Vladimir Putin seemed to agree with Saudi Crown Prince Mohammed bin Salman that the cuts were needed during a G20 meeting in Argentina. However, the recent comments by al-Falih suggest that there is still some disagreement over the specifics of the cuts between the two key oil producers.

The Saudis last month announced a 500,000 barrels per day (bpd) production cut in December, but al-Falih said the kingdom wouldn't do it alone. Absent cooperation, the oil minister suggested OPEC might not reach an agreement on cutting output in 2019 when supply is expected to outpace demand by 1.0 million bpd. However, a Russian proposal implied Moscow would cut the maximum of 150,000 bpd, which would leave Saudi Arabia doing all the heavy lifting to balance the oil market.

As the two countries try to coordinate around managing the oil price, the Saudi--Russia relationship will face new hurdles while both countries tackle emerging challenges of human rights abuses, poor track record of the rule of law and transparency. Thursday's OPEC meeting may offer new insights into stability of the relationship and whether both countries can remain as cooperating partners.

Stock exchanges are closed Wednesday in observance of a National Day of Mourning, a day after an aggressive sell-off in equities triggered by investors' concerns over the lack of details of the potential truce in the United States-China trade war. Trade agreement between President Donald Trump and China's President Xi Jinping reached in Buenos Aires, Argentina, came under investor scrutiny during Tuesday's trading session as equity markets questioned whether an agreement had been truly reached. The Dow Jones Industrial Average dropped 799 points or 3.1% to close at 25,027. The Standard and Poor's 500-stock index fell 3.2%, and the tech-heavy Nasdaq gave up 3.8%.

Contradictory accounts have emerged of what exactly was achieved by the U.S.-China trade deal with Larry Kudlow, the White House top economic advisor, offering "no assurances" of whether China would change its behavior in comments Tuesday afternoon at a Wall Street Journal event. Trump called himself "Tariff Man" in a tweet early Tuesday morning that started the sell-off frenzy in equity markets, spilling into crude oil futures late day. Previously, the White House asserted that China had committed to buying a substantial amounts of U.S. agricultural, industrial and energy products, while completely removing all tariffs on U.S. automobiles, a huge shift from its current 40% penalty. Chinese officials, meanwhile, did not confirm any of these accounts, including even the set deadline of 90 days under which they were operating. They wouldn't even acknowledge that there was a 90-day deadline under which they were operating.

In midmorning trade, Nymex January West Texas Intermediate futures were up $0.75 near $54 bbl, with ICE February Brent gaining $0.75 to near $62.85 bbl. Nymex January ULSD futures were up 2.25 cents near $1.9245 gallon, with January RBOB gaining 3.65 cents to $1.4800 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com